RBI – PLAYING SYMPHONY WITH THE BUDGET

Once again, coming so quickly on the back of the Budget, this was a very good policy from the RBI – today’s policy shows that the RBI is moving in tandem with the Govt.

And though the market might have expected a rate cut somewhere as inflation was close to the RBI’s target, its very logical that the RBI did nothing on the rate front and once again used other measures. The policy of today indicates that the RBI is assured that the economy is getting slowly back-on-track and which is why the slow unwinding of pandemic induced stimulus.

The decision of RBI to allow retail investors get direct access to G-Sec is a giant step in the right direction and this could mean that HNIs will now have another new, more secure one, to invest in.

The Governor’s closing statement instills a sense of optimism. He said, ““Going forward the Indian economy is poised to move in only one direction which is upwards. It is our strong conviction backed by forecasts, that in FY22 we will undo the damage that Covid-19 has indicated the economy. After the chaos and dispair of the year gone by through which we have sailed together, we shall continue to sail ahead.”

The message which RBI Governer conveyed today was that inflation will be moving upwards, given the rising price of crude and increased Govt spending. He has given a higher indication of growth but he has clearly indicated that rising inflation will take center stage once again. Normalisation of economic policy is right round the corner and with rising inflation, it means rate hikes could happen in the next six months.

Highlights of the policy:

Rates unchanged:

• Repo rate is maintained at 4%
• Reverse repo rate at 3.35%

GDP guidance:

• Growth of 10.5% in FY22

Inflation guidance:

• CPI inflation at 5.2% in Q4FY21
• CPI inflation at 5.2-5.0% in H1FY22
• CPI inflation at 4.3% in Q3 FY22
• Expect vegetable prices will continue to remain soft in near term

Stance of liquidity management

• Continues to be accommodative and completely in consonance with the stance of monetary policy
• Gross market borrowing of Centre is estimated at Rs 12 lakh crore

CRR normalization:

• CRR to be raised to 3.5% from Mar 27 and 4.0% from May 22
• Two-phase normalisation of the CRR needed in current context - opens up space for a variety of market options to inject additional liquidity

MSF:

• MSF relief facility for banks to be available for another 6 months till September
• This will provide increased access to funds to the extent of Rs 1.53 lakh crore

HTM:

• To extend dispensation of enhanced HTM of 22% up to March 31, 2023
• To include securities acquired between Apr 1, 2021 and Mar 31, 2022 in HTM dispensation
• HTM limits will be restored to 19.5% in a phased manner starting from Apr-Jun 2023
  
  NBFCs In TLTRO Scheme
• Funds from banks under TLTRO on tap scheme to be provided to NBFCs for lending in specific stressed sectors

Structural change:

• Retail investors will now have direct access to participate in the G-Sec market
• This access is for bond market, both primary and secondary, directly through the RBI